The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) on May 28 published their long-awaited joint revenue recognition standard titled “Revenue from Contracts with Customers” (Topic 606 and IFRS 15).

The largely principles-based standard (hereafter the new standard) provides a framework to address revenue recognition issues comprehensively for all contracts with customers regardless of industry-specific or transaction-specific fact patterns for both US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), with certain limited exceptions. The new standard, many observers believe, will affect the financial reporting practices of almost every company. Importantly, when a change in the recognition of revenue is required, the change often will result in recognizing revenue sooner, though certain cases could result in later recognition of revenue compared to the current standard.

Although the US tax law contains specific rules with respect to the recognition of revenue for tax purposes, there are certain instances in which revenue recognition for tax purposes depends on revenue recognition for financial accounting purposes (e.g., for advance payments). In these instances, the new standard could have a significant impact on a company’s cash tax position. In other instances, financial accounting changes as a result of the new standard could affect book-tax differences and deferred taxes related to revenue recognition.

The new standard generally is effective for annual reporting periods beginning after December 15, 2016 (public companies), and December 15, 2017 (nonpublic companies). Companies must apply the new standards either (1) retroactively to each prior reporting period presented or (2) retroactively with the cumulative effect of initially applying the standard recognized at the date of initial application.